Target Date Funds: A Hands-off Approach to Investing

Do you ever feel like you need a Ph.D. in finance to understand investing for retirement? Or that retirement planning is like trying to navigate through a labyrinth? You're not alone. That’s why Target Date Funds (TDFs), also called lifecycle or age-based funds, are popular with investors, and employers commonly use them as the default fund in 401(k) and 403(b) savings plans. It’s also one of the many reasons why MMBB offers our members TDFs called Target Retirement Funds.

To understand why TDFs have gained traction in the U.S., let’s look at what TDFs are. These funds offer the simplicity of a complete portfolio in a single investment option. Their diversified and balanced portfolio includes equities, fixed-income funds and short-term funds, and the year in the name of the TDF corresponds to the retirement date or target date for which it is designed. 

The Nitty Gritty

In layperson’s terms, when you're young and daring, these investment vehicles shift into high gear with more high-octane investments like stocks, which are growth-oriented assets. As you edge closer to retirement, TDFs age with you, gracefully pivoting your money into less risky bets like bonds, which are income-focused assets. 

The benefits of TDFs include not having to constantly check the markets and a reduced risk of making impulsive decisions about your investments based on market swings. It’s like having a financial co-pilot or being on cruise control, which is convenient for those who don’t have the time, the comfort level, or the inclination to scour financial trade publications regularly.

Where MMBB’s TDFs Come In

Each MMBB Target Retirement Fund is comprised of a portfolio of five broadly diversified Vanguard index funds. A single target-date investment is meant to serve you throughout both your career and retirement. Our funds range from the Target Retirement 2070 Fund for our youngest members to the Income Fund for members already in retirement.

“The Target Retirement Fund most closely aligned to a member’s retirement date is the default option if they haven’t chosen an investment allocation,” MMBB Chief Investment Officer Hyde Hsu explains. “It’s meant to be a complete solution since the portfolio follows a ‘glidepath’ that balances risk and return at every stage of the member’s life, i.e., the asset allocation shifts over time to take on a more conservative stance. Because of that, our members can place their money in one MMBB Target Retirement Fund and don’t need to invest in multiple ones.”

A Final Word

Because TDFs put your retirement planning on autopilot, many people may mistakenly view TDFs as a “set-it-and-forget-it” investment approach. However, “set-it-and-almost-forget-it” might be a more accurate description. If you choose to invest your money in a TDF, it’s wise to check whether it continues to meet your financial goals and risk tolerance periodically.

And remember, MMBB provides financial planning at no cost as a benefit of membership. We are here to guide you on your financial journey. If you’d like more information about TDFs or any other aspect of financial planning, contact our financial planning specialists at 1-800-986-6222 or [email protected].